Critical Analysis of Accounting Standards vis--vis Corporate Governance Practice in India

Dr. Vrajlal Sapovadia Core Faculty, MBA Department, NICM, (Post Graduate Centre of Gujarat University) Gandhinagar 382009, INDIA Phone; 91-79-23213037, 38, 39 prof-sapovadia@yahoo.co.in

Abstract:

Good Corporate Governance ensures better corporate performance, relationship with stakeholders, where the proper practice of Accounting Standards assumes immense importance at micro level, as effective disclosure leads to shareholders wealth maximisation and at macro level, they are essential to the efficient functioning of the economy because decisions about the allocation of resources/investment rely on credible, concise, transparent, comparable and understandable financial information about the corporate operations and financial position. To practice Good Corporate Governance , information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non- financial disclosure. This paper, critically examine the relevant Accounting Standards and such practices in India, to evaluate potency and fairness vis--vis Good Corporate Governance.

KEY WORDS: Accounting Standards, Good Corporate Governance, India

Critical Analysis of Accounting Standards vis--vis Corporate Governance Practice in India

Dr. Vrajlal Sapovadia Core Faculty, MBA Department, NICM, (Post Graduate Centre of Gujarat University) Gandhinagar 382009, INDIA Phone; 91-79-23213037, 38, 39 prof-sapovadia@yahoo.co.in

Business enterprises are established for the profit, but as they uses resources supplied by the society/State and environment and hence are responsib le to contribute part of the profit to society and environment also. Modern complex and big businesses are run by the persons (professionals) other than suppliers of the fund. This creates conflict of interest, among managers vs. corporation and corporation vs. society/environment. One prefers action for own benefit vs. company and benefit of company vs. society. It is good governance that harmonizes distribution of benefit judiciously amongst the different stakeholder without personal preference. The importance of good Corporate Governance has increasingly recognized for improving the firms competitiveness, better corporate performance and better relationship with all stakeholders, modern day corporations are known for the separation of ownership and control. After all, the managers are merely paid employees and the agency theory taught us that the independent managers can operate in a way that could be detrimental to the interests of the shareholder. It is, thus necessary, to have a mechanism by which the shareholders interest are protected by the managers. It is here that Corporate Governance can play a crucial role. Professors Shleifer and Vishney, defined Corporate Governance as dealing with the ways that suppliers of finance to corporations assure themselves of getting a return on their investment. In wider context, Corporate Governance is the relationship between corporate managers, directors and the providers of equity, people and institutions who save and invest their capital to earn a return. It entails responsibility of corporate actors towards society & environment that provides valuable resources to the corporation. Good

Corporate Governance ensures that the board of directors is accountable for the pursuit of

corporate objectives to enhance wealth of corporation and that the corporation itself conforms to the law and regulations. Corporate governance affects the interests of a larger cross-section of stakeholders and hence has implications for financial stability at macro level and is one of the key factors that determine the health of the system and its ability to survive economic shocks. Immediately after East Asia financial crisis, World Bank President, James Wolfensohn said that, World Bank will not extend any credit facilities to the country those who do not comply with international corporate governance norms, as corporate governance brings financial and economic stability. The corporate responsibility begins with the directors who are the mind and soul of the organization. The Board is expected to act as conscience-keeper of the corporate vision and mission, and devise the right type of systems for organizational effectiveness and satisfaction of stakeholders. Thus, the Corporate Governance is a system of accountability primarily directed towards the shareholders in addition to maximizing the shareholders wealth & welfare, where the debate on disclosure/ transparency issues of Corporate Governance eventually centers around the proper Accounting Standards, their practices and issues, as the application of Accounting Standards give a lot of confidence to the corporate management and the fair disclosure would be more effective and ensure the good Corporate Governance. Thus, the study of practices of Accounting Standards is an important and relevant issue of Good Corporate Governance in the present environment, as the standards are viewed as a technical response to call for better financial accounting and reporting; or as a reflection of a societys changing expectations of corporate behavior and a vehicle in social and political monitoring and control of the enterprise. More than the profits, it is the quality of governance, which will ensure corporate survival and growth and reinforce the faith of different stakeholders in the corporate entities. Unless company develops a culture of accountability across the value chain, the organization will not be able to sustain the complexities of good governance. It is a question of the survival of the fittest. Those who exercise good governance practices have

a greater change of success. It is looked upon as a distinctive brand and benchmark in the profile of corporate excellence.

McKinsey & Company's Global Investor Opinion Survey was conducted between April and May 2002, in collaboration with the Global Corporate Governance Forum. Its conclusions are based on responses from over 200 institutional investors representing about $2 trillion of assets under management. Findings include that corporate governance and financial disclosure are key factors in investment decisions and that reform priorities should focus on building financial system integrity.

As per OECD principles of Corporate Governance, Accounting Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial disclosure s. The application of high quality standards is expected to significantly improve the ability of investors to monitor the company by providing increased reliability and comparability of reporting, and improved insight into company performance. The quality of information substantially depends on the standards under which it is compiled and disclosed. The Principles support the development of high quality internationally recognised standards, which can serve to improve transparency and the comparability of financial statements and other financial reporting between countries. Such standards should be developed through open, independent, and public processes involving the private sector and other interested parties such as professional associations and independent experts. High quality domestic standards can be achieved by making them consistent with one of the internationally recognised accounting standards. In many countries, listed companies are required to use these standards.

OECD principles of Corporate Governance further emphasize that Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders. In some countries, the board is legally required to act in the interest of the company, taking into account the interests of shareholders, employees, and the public good. Acting in the best interest of the company should not permit management to become entrenched. This principle states the

two key elements of the fiduciary duty of board members: the duty of care and the duty of loyalty. The duty of care requires board members to act on a fully informed basis, in good faith, with due diligence and care. In some jurisdictions there is a standard of reference which is the behavior that a reasonably prudent person would exercise in similar circumstances. In nearly all jurisdictions, the duty of care does not extend to errors of business judgment so long as board members are not grossly negligent and a decision is made with due diligence etc. The principle calls for board members to act on a fully informed basis. Good practice takes this to mean that they should be satisfied that key corporate information and compliance systems are fundamentally sound and underpin the key monitoring role of the board advocated by the Principles. In many jurisdictions this meaning is already considered an element of the duty of care, while in others it is required by securities regulation, accounting standards etc. The duty of loyalty is of central importance, since it underpins effective implementation of other principles in this document relating to, for example, the equitable treatment of shareholders, monitoring of related party transactions and the establishment of remuneration policy for key executives and board members. It is also a key principle for board members who are working within the structure of a group of companies, even though a company might be controlled by another enterprise, the duty of loyalty for a board member relates to the company and all its shareholders and not to the controlling company of the group.

In recent years, the Indian economy has undergone a number of reforms, resulting in a more market-oriented economy. Particularly, after the Government of India embarked on liberalization and globalization of the economy, the size of Indian corporate are becoming much bigger and accordingly the expectations of various stakeholders are also increasing, which can be satisfied only by the Good Corporate Governance. And hence, Indian Corporate has obliged to reform their principles of Governance, Indian companies will now be required to make more and more elaborate disclosures than have been making hitherto, for which they are also required to adhere to the uniform and proper accounting standards, as the standards reduce discretion, discrepancy and improves the utility of the disclosure.

The Institute of Chartered Accountants of India (ICAI), which is an Apex Body for the developme nt of accountancy in India, has been working for the adoption and improvement of accounting standards. In order to frame the uniform accounting standards the ICAI became an associate member of International Accounting Standards Committee (IASC) in April, 1974. Recognizing the need to harmonize the diverse accounting practices prevalent in India and to integrate them with the global practices, the Accounting Standards Board (ASB) was constituted in April 1977 by ICAI. In view of liberalization of Indian economy in recent times, faster integration between Indian and International Accounting Standards (IAS) is warranted to have the benefits of foreign investments. In this direction, ASB of the ICAI has adopted 28 accounting standards. Accounting Standards are formulated to standardize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statements and add the reliability to the financial statements. Accounting Standards are well written documents, policy documents issued by expert accounting body or by Government or other regulatory body covering the aspects of recognition, measurement, treatment, presentation and disclosure of accounting transaction and events in the financial statement. It is also noteworthy that Government of India empowered Central Board of Direct Taxes to enact Accounting Standards for limited purpose of Accounting Method. The government has also processed separate Accounting Standards for Government accounting. But the ICAI plays an important role so far as Accounting Standards are concerned to the business firms. Accounting Standards in India issued by the Institute of Chartered Accountants of India (ICAI) are depicted in the following table: Accounting Standards (issued by ICAI) in India vs. International Accounting Standards:
Number of the AS AS 1 Title of the Accounting Standard Comparable IAS IAS 1 Title of the Accounting Standard Presentation of Financial Statements

Disclosure of Accounting Policies

AS 2 AS 3 AS 4

Valuation of Inventories Cash Flow Statements Contingencies and Events Occurring after the Balance Sheet Date Net Profit or Loss for the period, Prior Period and Extraordinary Items and Changes in Accounting Policies Depreciation Accounting

IAS 2 IAS 7 IAS 10

Inventories Cash Flow Statements Events After the Balance Sheet Date

AS 5

IAS 8

Accounting Policies, Changes in Accounting Estimates, and Errors

AS 6

IAS 16 IAS 38

Property, Plant & Equipment Intangible Assets Construction Contracts

AS 7

Accounting for Construction contracts Accounting for Research and Development (Irrelevant after issuing AS 26) Revenue Recognition Accounting for Fixed Assets

IAS 11

AS 8

AS 9 AS 10

IAS 18 IAS 16

Revenue Property, Plant and Equipment The Effects of Changes in Foreign Exchange Rates

AS 11

Accounting for the Effects of Changes in Foreign Exchange Rates Accounting for Government Grants

IAS 21

AS 12

IAS 20

Accounting for Government Grants and Disclosure of Government Assistance

AS 13 AS 14

Accounting for Investments Accounting for Amalgamations (IAS 22) IFRS 3 IAS 19 Business Combinations

AS 15

Accounting for Retirement Benefits in the Financial Statement of Employers Borrowing Costs Segment Reporting Related Party Disclosures Leases Earnings Per Share

Employee Benefits

AS 16 AS 17 AS 18 AS 19 AS 20

IAS 23 IAS 14 IAS 24 IAS 17 IAS 33

Borrowing Costs Segment Reporting Related Party Disclosures Leases Earnings Per Share

AS 21

Consolidated Financial Statements

IAS 27

Consolidated & Separate Financial Statements Income Taxes Investments in Associates

AS 22 AS 23

Accounting for taxes on income. Accounting for Investments in Associates in Consolidated Financial Statements Discontinuing Operations Interim Financial Reporting Intangible Assets Financial Reporting of Interests in Joint Ventures Impairment of Assets

IAS 12 IAS 28

AS 24 AS 25 AS 26 AS 27

IAS 34 IAS 38 IAS 31

Interim Financial Reporting Intangible Assets Interests In Joint Ventures

AS 28

IAS 36

Impairment of Assets

It is observed that small and medium enterprise have no adequate capabilities and resources to comply with all Accounting Standards, and hence not necessary to put them on same footing with big enterprises. ICAI has thus classified enterprises into three categories as under to differentiate the mandate and extent of disclosure of Accounting Standards vis--vis the public interest in the enterprise. Applicability of Accounting Standards & Level of Enterprise:
Particulars The criterion Level I Enterprise Listed enterprises Pipe line enterprises for listing Banks Financial Institutes Insurance enterprises Enterprise having turnover more than INR 500 million Enterprise whose borrowing exceeds INR 100 million Holding or subsidiary of above listed enterprises All AS mandatory Level II Enterprises Enterprise not covered under Level I, but.. Enterprises having turnover exceeding INR 4 million but less than INR 500 million Enterprises whose borrowing exceeds INR 10 million but less than INR 100 million Level III Enterprise Enterprise not covered under Level I and II.

Applicabilit y of Accounting Standards

Not applica ble AS - 3, 17, 18, 24, 21, 23, 25,

Applica ble but relaxatio n of certain disclosu re AS

Res t of AS are ma nda tory

Rest of AS are mandatory like previous item

27

19, 20

The present study has analyzed relevant Accounting Standards pertaining to fair disclosure where more precautions are required. In selecting the Accounting Standards, following discussion based on OECD principles of Corporate Governance has set the path of determining higher Weightage. The Rights of Shareholders and Key Ownership Functions : As per Corporate Governance principles discussed at OECD, the Corporate Governance framework should protect and facilitate the exercise of shareholders rights. A. Basic shareholder rights should include the right to: 1. Secure methods of ownership registration; 2. Convey or transfer sha res; 3. Obtain relevant and material information on the corporation on a timely and regular basis; 4. Participate and vote in general shareholder meetings; 5. Elect and remove members of the board; and 6. Share in the profits of the corporation.

B.

Shareholders should have the right to participate in, and to be sufficiently informed on, decisions concerning fundamental corporate changes such as:

1. Amendments to the statutes, or articles of incorporation or similar governing documents of the company; 2. The authorization of additional shares; and 3. Extraordinary transactions, including the transfer of all or substantially all assets that in effect result in the sale of the company. C. Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings and should be informed of the rules, including voting procedures that govern general shareholder meetings:

1. Shareholders should be furnished with sufficient and timely information concerning the date, location and agenda of general meetings, as well as full and timely information regarding the issues to be decided at the meeting. 2. Shareholders should have the opportunity to ask questions to the board, including questions relating to the annual external audit, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations. 3. Effective shareholder participation in key corporate governance decisions , such as the nomination and election of board members, should be facilitated. Shareholders should be able to make their views known on the remuneration policy for board members and key executives. The equity component of compensation schemes for board members and employees should be subject to shareholder approval. 4. Shareholders should be able to vote in person or in absentia, and equal effect should be given to votes whether cast in person or in absentia.

The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company. Disclosure should include, but not be limited to, material information on: 1. The financial and operating results of the company. 2. Company objectives. 3. Major share ownership and voting rights. 4. Remuneration policy for members of the board and key executives, and information about board members, including their qualifications, the selection process, other company directorships and whether they are regarded as independent by the board. 5. Related party transactions. 6. Foreseeable risk factors. 7. Issues regarding employees and other stakeholders. 8. Governance structures and policies, in particular, the content of any corporate governance code or policy and the process by which it is implemented.

On the basis of above, the present study has included relevant Indian Accounting Standards with that of International Accounting Standards that has bearing on the crucial issues discussed here before. It is therefore high time to amend Accounting Standards and incorporate shortcoming compared with global standard setters like IAS and International Financial Reporting Standards (IFRSs). ICAI has also taken step in this direction to harmonize Indian Accounting Standards and converging into IFRSs. Comparative Study Indian Accounting Standard vs. International Accounting Standard:
International Accounting Standard IAS1: It deals with disclosure of Accounting Policies. IAS 1 prescribed minimum structure of financial statements and contains guidance on related issues viz. current liabilities etc. Indian Accounting Standard AS1: It deals with disclosure of Accounting Policies. AS 1 neither prescribed minimum structure of financial statements nor contains guidance on related issues like current liabilities. It does not deal with overall considerations like fair presentation, offsetting and comparative information. AS1 does not prescribe financial statements showing changes in equity. AS 1 dos not deal with these aspects.

IAS 1, interalia, deals with overall considerations, including fair presentation, off-setting, comparative information. IAS 1, Financial Statements includes Statements showing changes in equity. Under IAS 1, there is presumption that application of IFRS (International Financial reporting standards) would lead to fair presentation. IAS 1 requires specific disclosure for departure from IFRS. IAS 1 requires disclosure of critical judgments made by management in applying accounting policies. IAS 1 prohibits any items to be disclosed as extraordinary items. IAS 8: IAS 8 requires retrospective effect in case of change in accounting policy for adjusting opening retained earnings and restatement of prior period

AS 1 does not prescribe any such statements to be prepared. In AS 1 there is no such presumption.

In AS 1 there is no such provision.

There is no such specific disclosure in AS 1.

AS 5 specifically requires disclosure of certain items ad Extraordinary items. AS 5: AS 5 requires only prospective change in accounting policy with appropriate disclosure and prior period items to be included in the determination of net profit

figures of opening balances of assets, liabilities and equity for the earliest period predictable. The definition of prior period items has been defined broadly in IAS 8 and covers all the items in the financial statements. IAS 8 requires disclosure of any impending change in accounting policy viz. change mandated by new accounting standards which is yet to come into effect. IAS 18: Under IAS 18, revenue from sale of goods cant be recognised when entity retains continuing managerial ownership or effective control over the goods sold. IAS 18 allows revenue from rendering services only on percentage of completion method. IAS 18 requires effective interest method prescribed in IAS 39 to be followed for interest income recognition. (IAS 39 - FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT) Under IAS 18, payments received in advance for goods yet to manufacture or third party sales cant be recognised as revenue until such goods are delivered to the buyer. IAS 14: IAS 14 prescribes treatment of revenue, expenses, profit/loss, assets & liabilities in relation to Associate and Joint ventures in consolidated financial statements. IAS 14 encourages reporting of vertically integrated activities as separate segments but does not mandate the disclosure. IAS 14 provides that a business segment can be treated as reportable segment only, if, inter alia, majority of its revenue is earned from sales to external customers. Under IAS 14, if a reportable segment ceases to meet threshold requirements, than also it remains reportable for one year if the management judges the segment to be of continuing significance. IAS 24: The definition of related party under IAS 24 includes post employment benefit plans (e.g. gratuity, pension) of the enterprise or of any other entity, which is a related party of the enterprise.

or loss for the current period.

AS 5 covers only incomes and expenses in the definition of prior period items

AS 5 does not require any such disclosure.

AS 9: AS 9 does not contain any such stipulation.

AS 9 allows completed service contract method or proportionate completion method. AS 9 requires interest income to be recognised on a time proportion basis.

AS 9 permits recognition when goods are manufactured, identified and ready for delivery.

AS 17: AS 17 does not make any distinction between vertically integrated segment and other segments

AS 17 does not make any distinction between vertically integrated segment and other segments

AS 17 does not contain any such stipulation.

AS 17, this is mandatory irrespective of judgment of management.

AS 18: AS 18 does not include any such relationship.

The definition of Key Management Person (KMPs) under IAS 24 include any director whether executive or non-executive are also related party. Under IAS 24, if any person has indirect authority and responsibility for planning, directing and controlling the activities of the enterprise, he will be treated as KMP. The definition of related party under IAS 24 includes close members of the families of KMPs as related party as well as of persons who exercise control or significant influence. IAS 24 requires compensation to KMP to be disclosed category wise including share based payments. IAS 24 mandates that no disclosure should be made to the effect that related party transactions were made on arms length basis unless terms of the related party transaction can be substantiated. No concession is provided under IAS 24 where disclosure of information would conflict with the duties of confidentiality in terms of statue or regulating authority. Under IAS 24, the definition of control is restrictive as it requires power to govern the financial or operating policies of the enterprise. Again, control does include contrl over composition of board of directors. The disclosure under IAS 24 is applicable when related party relationship exists on date of balance sheet. IAS does not define significant influence which is to be considered while determining related party relationship. IAS 33: IAS 33 requires separate disclosure of basic and diluted EPS for continuing operations and discontinued operations. AS 33 deals with computation of EPS in case of share based payment transactions. IAS 33 prescribes treatment of written put options and forward purchase contracts in computing EPS.

AS 18 exclude non-executive directors from definition of KMPs.

AS 18 does not specifically cover indirect authority and responsibility.

AS 18 covers only relatives of KMPs.

AS 18 requires disclosure of remuneration paid to KMP but does not mandate category wise disclosure.

AS 18 contains no such stipulation.

AS 18 provides exemption from disclosure in such cases.

Under AS 18, the definition is wider as it refers to power to govern the financial and/or operating policies of enterprise. Control include control over composition of board of directors.

AS 18 require disclosure even relationship exists at any time during the reporting period.

AS 18 prescribe rebuttable presumption of significant influence if 20% or more of the voting power any party holds. AS 20: AS 20 does not require any such separate computation or disclosure.

AS 20 does not contain any such provision.

AS 20 is silent on this aspect.

IAS 33 requires changes in accounting policy to be given retrospective effect for comp uting EPS, which means EPS to be adjusted for prior period presented. IAS 33 does not require disclosure of EPS with and without extraordinary item. IAS 33 does not deal with the treatment of application money held pending allotment. IAS 33 requires dis closure of anti-dilutive instruments even though they are ignored for purpose of computing dilutive EPS. IAS 33 does not require disclosure of normal face value of share. IAS 27: Under IAS 27, it is mandatory to prepare Consolidated Financial Statements (CFS) and an entity should prepare separate financial statements in addition to CFS if local regulations so require. IAS 27 permits exemption from preparation from CFS if certain conditions are fulfilled. Under IAS 27, subsidiary cannot be excluded fro m consolidation under any circumstances

AS 20 does not prescribe such treatment.

AS 20 requires EPS/DPS with and without extraordinary items to be disclosed separately. AS 20 prescribe, application money held pending allotment should be included in computation of diluted EPS. AS 20 does not mandate such disclosure.

Under AS 20, disclosure of normal face value is required to disclose. AS 21: Under AS 21, it is not mandatory to prepare CFS.

There is no such exemption.

Under AS 21, subsidiary can be ex cluded from consolidation if, the subsidiary is acquired and held with an intention to dispose or the subsidiary operates under severe long term restrictions impairing its ability to transfer funds to parent company. AS 21 does not provide any such eventuality.

Under IAS 27, while determining whether entity has power to govern financial and operating policies of another entity, potential voting rights currently exercisable should be considered.

Under IAS 27, the definition of control, restrictive as it requires power to govern the financial or operating policies of the enterprise. Again, control does include control over composition of board of directors. Under IAS 27, use of uniform accounting policies for like transactions while preparing CFS is mandatory. Under IAS 27, minority interest has to be disclosed within equity but separate from parent shareholders equity. Under IAS 27, goodwill, capital reserve on consolidation is computed on fair value of assets

Under AS 21, the definition is wider as it refers to power to govern the financial and/or operating policies of enterprise. Control includes control over composition of board of directors. AS 21 gives exemption if it is impracticable to follow uniform accounting policies.

Under AS 21, minority interest has to be separately disclosed from liability and equity of parent shareholder. Under AS 21, goodwill, capital reserve on consolidation is computed on the basis of carrying

and liabilities. Under IAS 27, three months time gap is permitted between Balance Sheet dates of financial statements of subsidiary and parent. IAS 27 prescribes that differed tax adjustment as per IAS 12 should be made in respect of timing difference arising out of elimination of unrealising profit. IAS 27 requires drawing up of financial statements as on the date of acquisition for computing parents portion of equity in subsidiary.

value of assets and liabilities. Under AS 21, six month time gap is allowed.

AS 21 is silent on this aspect.

Under AS 21, for computing parents portion of equity in a subsidiary at the date on which investment is made, the financial statements of immediately preceding period can be used as a basis of consolidation if it is impracticable to draw it for subsidiary as on the date of investment. AS 21 requires additional disclosure of list of all subsidiaries including the name, country of incorporation, proportion of ownership and if different, proportion of voting power held. AS 23: As 23 is silent on the issue.

IAS 27 does not require additional disclosure of list of all subsidiaries including the name, country of incorporation, proportion of ownership interest and if different, proportion of voting power held. IAS 28: Under IAS 28, potential voting rights currently exercisable to be considered in assessing significant influence. As per IAS 28, difference between Balance Sheet date of investor and associate can not be more than three months. Under IAS 28, if uniform accounting policies are not followed by investor and investee, necessary adjustments have to be made while preparing consolidated financial statements of investor. Under IAS 28, while recognizing losses of associates/ joint ventures, carrying amount of investment in equity and other long term interests required to be considered. IAS 28 envisages net fair value of goodwill and capital reserve on acquisition. Under IAS 28, it is necessary to subject the investments in associates/ joint ventures to the test of impairment While defining significant influence under IAS 28, participation in the financial and operating policy decision is envisaged. IAS 31: Under IAS 31, when the investments are made by venture capital organisation, mutual funds, unit

As 23 does not specified any time difference but mandated consistency.

AS 23 gives exemption if it is impracticable to make necessary adjustment, provided appropriate disclosures are made. Under AS 23, losses are to be recognised to the extent of investment plus incurred obligations plus payment made towards guaranteed obligations.

For computing goodwill, As 23 prescribes historical cost basis on acquisition. Under AS 23, if decline in value of investment in an associate is permanent, provision for diminution to be made and no impairment test is required. As per AS 23, participation in the financial and operating policy decisions is required. AS 27: There is no such provision in AS 27.

trusts and similar entities when those investments are classified as held for trading and accounted as per IAS 39. IAS 31 does not apply if parent company is exempted from preparing CFS under IAS 27. Similar exemption for investor entity, if satisfying conditions as parent entity. IAS 31 permits both proportionate consolidation method and equity method for recognizing interest in a jointly controlled entity in CFS. There is no such provision in AS 27.

AS 27 permits only proportionate consolidation method.

Suggestions: Accounting Standards should be reviewed in the light of new development (technical, financial, legal, economical and frauds) and international practices. The Accounting Standards should harmonize not only with international standards but with other applicable corporate and taxation legislation. To incorporate social justice, environmental issues, economic reforms and social context, vis--vis to make professional managers and directors more accountable to shareholders & other stakeholders Accounting Standards should narrow the choice of alternative accounting practices that make fair disclosure of accounting and financial information. In the light of above, it is suggested that fair disclosure, honest actions, independence, materiality and vision to sustainable development of corporation and society should be woven together with vibrant but precise Accounting Standards. References: 1. Global Investor Opinion Survey: Key Findings, McKinsey & Comp any, New York, July 2002 2. Privatization and Corporate Governance: Principles, Evidence and Future Challenges, Alexander Dyck, World Bank Research Observer 16 (1): pp. 59-84, October 2000 3. Corporate boards and nominee directors: Making the boards work, Press, Gupta L.C. (1997), Oxford University 4. 2nd ICSI National Awards for Excellence in Corporate Governance, The Chartered Secretary, Vol.No.XXXII, Dec. 2002. 5. Corporate Governance in India: Disciplining the dominant shareholder, Varma J.R. (1997), Management Review, October-December, 5-18. 6. Confederation of Indian Industry: Desirable corporate governance: a code. 7. R. Sreedhan (2001), Good Governance is Good Business, Business Today, May 21, 2001.

8. Corporate Governance: A Sociological Perspective, Murthy K.R.S. (1998), Journal of Management, Vol. 27, 1998. 9. Corporate governance and ethics: The issues, Rao, S.L. (1998),. 10. Towards Self Regulation, Business Today, Baxi C.V. (2000), January 7, 2000. 11. www.icai.org (the web site of Institute of Chartered Accountants of India) 12. A Survey of Corporate Governance, Shleifer, A. & Vishney, RW (1997). 13. Corporate Governance and Equity Prices, Paul A. Gompers at el [ Quarterly Journal of Economics 118(1), February 2003, 107-155] 14. http://www.iasplus.com/standard/standard.htm 15. OECD Principles of Corporate Governance http://www.oecd.org/dataoecd/32/18/31557724.pdf 16. Corporate Governa nce and Accounting Standards in India: An Empirical Study on Practices by Dr. K. Shankaraiah , D.N. Rao